Diary of a private investor: James Bartholomew explains why two tiny
firms from the Baltics offer better opportunities than Britain

The stock market stumbled into 2014 like Stan Laurel tripping over a threshold. The explanations for this tumble are not completely convincing. Supposedly the market has been concerned that the United States may do more “tapering” – reducing its monetary stimulus. This, it is said, could lead to higher American interest rates which, in turn, could cause people to desert emerging markets for a better return. You will notice that this elongated explanation still has not got to why Tesco – or any other British share – should fall.

Another factor that is supposed to be hurting sentiment is China. Poor China. It seems to get the blame whenever shares fall. But frankly I am sceptical that any of this is the real cause. I suspect it is just as likely that British shares had a good Christmas rally and were overdue for a relapse.

Sweeping generalisations about emerging markets are becoming silly anyway. There is a world of difference between Singapore, with a higher per capita income than France, and Argentina, which has major debt problems.

In any case, I am currently investing in one of the least well-known emerging markets, bravely disregarding the risks posed by tapering: Lithuania. I can imagine some readers thinking, “Why Lithuania, for goodness sake?” The truth is that I cannot remember what snippet of news made me turn to the Baltic states. But I used the internet to look at companies quoted on the exchange there and found several that seemed to be growing well and priced at a much lower level than they would be in Britain. These companies are typically young and, I hope, enterprising, since it is not that long ago that the region was communist.

The two I chose are inter­national in their operations. One is City Service, which services offices in various countries including Spain. At €1.84 it stands at just over six times forecast earnings per share for this year. It is a small company with a market value of €58m. The other is Linas Agro, which trades grains, feedstuffs and other products for farming. Its market value is about twice as big. At €0.65 the company is priced at just under six times expected earnings. The truth is, I have bought in Lithuania partly because these look like growing companies at good prices and partly because I find it exciting.

What about British shares? Are they going to rise this year? I expect so. I am beginning to think the recovery is more interesting and important than most people realise. The International Monetary Fund forecasts that we will have the second fastest growth after the US this year among the G7 group of advanced countries. But it may be even better than that. We are seeing truly remarkable improvements in employment. It is reminiscent of that seen in Germany following the so-called Hartz reforms of the labour market nearly a decade ago. These helped give Germany the progress it has enjoyed since about 2006.

Similarly, the British Government has made important reforms intended to push more people to seek work. So it is possible that the British economy can now have lower unemployment than previously without stimulating inflation. If so, interest rates will not need to rise as soon as some expect. That would be good news for shares, the economy and government finances too.

However, as the year goes by we get closer to the 2015 general election. Labour is ahead in the polls and favourite to win most seats. This is not a political column but politics can affect shares. Labour appears more anti-business and hostile to the wealthy than for a long time. Tony Blair and Gordon Brown, for nearly all their time in power, presided over a top rate of tax of 40pc, whereas the current Labour leadership wants to impose 50pc. The party’s approach to banks and energy companies is also concerning. Meanwhile, the Liberal Democrats want a “mansion tax”. This anti-business, anti-wealth drift might be moderated in government. But the closer we get to the election, the more investors might worry.

Despite the hopeful economic outlook here, it is probably not a bad idea to keep a good portion of one’s portfolio abroad. It is strange to think we may have reached a time when having some money in ex-communist Lithuania and China can be seen as a hedge against anti-capitalism in Britain.